Texas Foreclosure Laws
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Texas operates on the title theory wherein the title of the property stays as assurance till the payment of the loan in question takes place in full. A deed of trust (also known as a mortgage) is the document through which the title is secured.
A non-judicial foreclosure is the process that is primarily followed to foreclose on a property in Texas. In this method, except in some provisions for notices, no court action is needed. To foreclose on the property to satisfy the loan that has been defaulted on, a trustee can make use of the power of sale clause which is generally included in the trust deed at the initial signing stage. The trustee works as the lender’s representative to bring about the sale, which is generally held as a public auction. This being a non-judicial recourse, very strict requirements for notices, and the inclusion of the power of sale clause in the mortgage is essential to follow this manner of foreclosure.
Before a lender initiates foreclosure a letter of demand must be sent to the borrower which requests the amount that is past due to be paid within a period of twenty days, failing which, proceedings on the foreclosure begin.
After this notice of twenty days and a minimum of twenty one days prior to the foreclosure sale, the foreclosure notice has to be filed at the county clerk’s office where the property is situated. It also needs to be sent through mail to the borrower in default, besides creditors who have liens connected to the property, and the posting of the same should also be done at the court where the sale is to take place.
Sales of foreclosures have to occur on first Tuesdays of every month at the county courthouse in between 10:00am and 04:00pm. If the date happens to fall on a legal-holiday, the sale still goes on. The property is auctioned by the trustee and goes to the party with the highest bid; this could also be the lender in which case a credit is given for the amount that is outstanding on the debt in question.
Lenders in Texas can also opt for a judicial foreclosure which takes place through a court, and the court pronounces the final ruling on the foreclosure. The lender has to seek judicial foreclosure if the power of sale clause is absent from the deed of trust. The property then sells as part of a sale that has been publicly notified. A complaint, along with a lis pendens, needs to be filed in court. A lis pendens is a legal document that is used to provide a notice to the public about the property in foreclosure.
The legal paperwork is generally referred to as a deed of trust or note, and in cases of commercial transactions, a security agreement. The security agreement is, at times, merged with the mortgage document. A mortgage can also be filed to authenticate the loan in question and its repayment terms, which find a mention in the note.
It generally takes about 60 days to bring into effect a non-judicial foreclosure that hasn’t been contested; this does depend on the time required by various notices. If the action is contested in the court by the borrower, if the sale is sought to be postponed or if bankruptcy is filed for by the borrower, the process can be stalled.
A statutory right for redemption does not exist in Texas for the borrower to take care of the unpaid loan and the costs, so that the property can be reclaimed.
If a foreclosure property sells for lesser than the amount on the loan that is secured by the mortgage, a deficiency judgment can be obtained by the lender. A judgment on deficiency limits to the amount that differs between the amount on the loan in default when the sale was made and the property’s fair market value (irrespective of how much the property sells for at the sale). An appraisal determines the property’s fair market value.
Foreclosures in Texas are governed by laws that are part of Title 5, Section 51 of Texas Code.
